Evaluation of Start-up and Innovative Businesses

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Statement of Declaration

Here I would like to declare that all the information included in this dissertation is based on my individual work without any help from any other party. This dissertation has not been submitted for any examination at academic as well as professional level previously. It is also representing my own views and they are not associated with any institution or individual member of the country.

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Acknowledgement

I am very grateful to my parents and my teachers for showing their love, support and encouragement at every phase in my life. I am also thankful to my family and friends for being supportive and for motivating me which enabled me to accomplish my goals. I wish and express my gratitude to all my teachers and supervisors who guided me throughout my dissertation which has helped in compiling this dissertation. My teachers have provided me a lot of times in making me understand several things related to my research topic. I am thankful to all my teachers for guiding me and was always there when I needed them. This dissertation has become a learning experience for me where my teachers increased my knowledge at every stage of the thesis. This research dissertation was a very good learning experience for me as I enjoyed quality time with my friends and teachers.

ACKNOWLEDGEMENTIII

CHAPTER ONE: INTRODUCTION2

1.1 Introduction2

1.2 Background3

1.3 Aims and Objectives6

1.4 Problem Statement6

1.5 Research Question6

1.6 Significance of Study7

CHAPTER TWO: LITERATURE REVIEW9

2.1 Start-ups and Innovative Businesses9

2.2 Start-up Capital10

2.3Sources of Start-up Capital11

2.3.1 Personal Finances12

2.3.2 Friends and Family12

2.3.3 Angel Investors13

2.3.4 Debt Financing13

2.3.5 Equity Financing14

2.3.6 Customer Financing14

2.3.7 Government Sponsored Programs15

2.4 Discounted Cash Flow Method of Valuation15

2.5 Challenges and Problems in Discounted Cash Flow Method15

2.6 Relative Valuation Model20

2.7 Stages of Investment20

2.7.1 Seed Funds21

2.7.2 Procedures of Series A and Series B Funding21

2.8 Qualities and Characteristics Sought by Angel Investors and Venture Capitalists22

2.8.1 Strength of the Management Team23

2.8.2 Size of the Opportunity23

2.8.3 Competitive Landscape23

2.8.4 Sales Channels24

2.8.5 Funding Requirement24

2.9 Procedure of Valuation24

2.9.1 Assessing the Current Standing of Firm24

2.9.2 Estimation of the Revenue Growth25

2.9.3 Estimation of a Sustainable Operating Margin in Stable Growth25

2.9.4 Estimation of Reinvestment to Generate Growth26

2.9.5 Estimation of Risk Parameters and Discount Rates26

2.9.6 Estimate of the value of the Firm27

2.9.7 Estimation of the Value of Equity and Per-Share Value28

CHAPTER THREE: METHODOLOGY29

3.1 Research Design29

3.1.1 Primary Research30

3.2 Research Approach30

3.3 Research Technique31

3.4 Research Instrument32

3.5 Research Strategy32

3.6 Sampling33

3.7 Data Analysis Technique33

CHAPTER FOUR: RESULTS AND FINDINGS36

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS57

5.1 Recommendations60

REFERENCES62

APPENDIX64

Questionnaire for Survey64

Abstract

The study was conducted to find out the valuation methods used by angel investors in order to take investment decisions related to start-up and innovative businesses. The study aimed to find out the problems of classic valuation methods DCF faced by angle investors, secondly it will find out the approaches of capital used by angle investors like Seed funds, Series A and Series B funding procedures, the study will also try to reveal the general attitudes and key qualities sought by the Angel investors and Venture Capitalist and it also analyzed the company data with the help of ...